The floods in Queensland in January as well as cyclone Yasi look like having a bigger impact on the economy than previously thought.
Lost coal production and exports could be larger than first estimated according to the Queensland mining industry, Federal Treasury, and the Treasurer, Wayne Swan (See below).
The export revenue loss could be around $6 billion or more.
That estimate will be fleshed out a bit later today with the release of February’s trade figures.
That will tell us the impact of the floods, rail disruptions and force majeure declarations from the Queensland coal mining industry in February.
The loss in January was more than $800 million in lost sales, according to the January trade data.
But while that will hit our trade account, there was better news from China on Friday with the two surveys of manufacturing activity remaining solidly in the expansion phase (see below).
Meanwhile the Reserve Bank of Australia’s (RBA) index of commodity prices rose again in March from February, reaching yet another record high as prices for crude oil, coal and gold climbed (See above graph).
The increase of 0.6% was after a downwardly revised increase of 1.4% in February.
Compared to March 2010, the index was up a massive 41% in special drawing right (SDR) terms.
In Australian dollar terms, the index rose by 1.6% in March and was up 32% for the year.
The index also hit a record high in US dollar terms, to be up 46% on March last year.
The largest contributor to the rise in March were increases in the estimated prices of coking coal, coupled with rises in the price of crude oil and gold.
Much of the increase for the past year or more reflected huge price rises for iron ore and coal, Australia’s two biggest export earners.
The floods haven’t impacted prices of exports, such as coal.
In fact they have further boosted them, as the record thermal settlement coal price settlement from Xstrata late last week shows.
Xstrata won a 2011 contract price of $US129.90 a tonne for Australian thermal coal in Japan, up from just under $US100 last year.
(This is for the Japanese financial year to March 31, 2012.)
(Spot prices for thermal coal have been much higher, close to $US180 a tonne and more at times in January and February.)
The higher prices will also offset the effect of the lower volumes on first and second quarter GDP.
Federal Treasury said in its quarterly update of its business liaison program that the Queensland floods and cyclone Yasi may have had a much larger impact on the economy than first thought, with the loss of coal production expected to be double official forecasts.
According to Treasury’s quarterly business liaison report, businesses say coal production losses could be between 20 million and 30 million tonnes during the March quarter, compared with official estimates of 15 million tonnes.
Treasury said this could lead to losses of between $5.5 billion and $8 billion of coal production, much higher than present estimate of about $5 billion.
"Although weather conditions have normalised, mines are still affected by flooding: some mines are still flooded and face logistical and regulatory hurdles (because of the water salinity) in pumping out the water," Treasury said.
"While the greatest impact will have been in the March quarter, effects appear likely to extend into the June quarter.
"Lower coal exports have been partly offset through higher prices, which have increased sharply in response to the temporary supply constraints.
"Notwithstanding the immediate problems, prospects for the industry are strong, with businesses looking to expand production through increased investment."
The Queensland Resources Council also says the official estimates for lost output may be too low, and should be about 30 million tonnes.
And Federal Treasurer, Wayne Swan said yesterday in his weekly economic note:
